Determinants of Working Capital Requirement: Evidence from Manufacturing Companies in Ethiopia

Abstract

The purpose of this study was to identify the determinants of the working capital requirement of manufacturing companies in Ethiopia. The study followed explanatory research design using four years’ data, from 2010/11 to 2013/14, from a sample of 85 manufacturing companies in Ethiopia from 10 manufacturing industrial sub-sectors. Univariate analysis of descriptive statistics, correlation, and fixed effect model were employed as methods of data analysis, and then results were presented using tables, followed by a brief description interpreting them. The results of fixed effect model showed that while operating cycle and firm size are positive and significant determinants of working capital requirements, real gross domestic product and fixed assets ratio were found to be negative and significant determinants. Based on the results of the study, the researcher recommended that operating cycle, firm size, fixed assets ratio, and real gross domestic product shall be considered by financial managers while setting the working capital requirement of their companies.

Keywords: Working Capital Requirements, Firm Size, Fixed Assets Ratio, Real Gross Domestic Product, Operating Cycle

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